Elusive Donors Get More Expensive

June 20, 2017 Andy Segedin

Giving continued its slow ascent during 2016, with positive gains hamstrung by losses in efficiency and momentum. The recent trends have created the effect of nonprofits shuffling forward, taking a step back for every two steps forward, according to a pair of recent studies.

The 2017 Fundraising Effectiveness Survey, conducted by the Fundraising Effectiveness Project (FEP) found that the cost of gaining $100 is $95 for nonprofits, a 5 percent margin that is coupled by a donor retention rate of 45 percent.

Jason Lee, interim CEO and president of the Association of Fundraising Professionals (AFP), said that “tracking actual nonprofit transactions collectively is a relatively new trend. While similar data has been available in the for-profit world for years, analyzing donation history from thousands of nonprofits has finally created benchmarks that nonprofits can use to compare themselves to their peers. Nonprofits can now make better decisions based on this big data analysis, which helps all nonprofits raise more money they need to execute their missions.”

The 2017 FEP includes the collaboration of the AFP and the Urban Institute. The report summarizes data provided by donor software firms: Bloomerang, DonorPerfect, and NeonCRM. Additional partners and data providers include the 7th Day Adventists, DataLake, DonorTrends, eTapestry, ResultsPlus, and ClearViewCRM. The data were then cleansed to remove abnormalities, for example, any organization with fewer than 25 donors, or organizations that did not have any donors in 2015 or 2016. The final data set contained 10,829 nonprofits.

The participating organizations raised $9.129 billion in 2016 as compared to $8.862 billion in 2015, a 3-percent growth. The average gift similarly increased by 4.75 percent, $419 in 2016 as compared to $400 in 2015.

The peaks were not reached without treading through some valleys. Gains of $4.893 billion in gifts from new, upgraded, or reactivated donors were offset by $4.625 billion in reduced gifts and lapsed donors — the $267 million net gain meaning that for every new $100 gained in 2016, $95 was lost through attrition. Further, the 4.882 million new and reactivated donors shown in the study were offset by 4.832 million lapses, a loss of 99 donors for every 100 gained. The average donor retention rate in 2016 was 45 percent, down 0.5 percent from 2015. Retention rates during the past 10 years have consistently hovered below 50 percent, according to the data.

Erik Daubert, chair of FEP, described the 3-percent increase as a positive, but voiced concern regarding the millions of donors who do not repeat their giving. “The fact that nonprofit organizations are losing 55 percent of their donors from one year to another is not a sustainable strategy,” he said. “If nonprofits were a business where the majority of customers do not return, the business would quickly be out of business.”

The hot-and-cold aura around giving was also felt in the Nonprofit Research Collaborative’s (NRC) Winter 2017 Nonprofit Fundraising Study. Of the 797 American charities that participated, 60 percent had an increase in receipts as compared to 2015. While the figure shows progress, the percentage was down from 65 percent in 2015 and represented the study’s lowest rate since 2010. More than one-quarter (27 percent) of organizational representatives reported decreases in receipts as compared to 23 percent in 2015.

The decrease among organizations with improved receipts was a little surprising, but still reflected slow, steady overall growth, according to Aggie Sweeney, CFRE, senior counsel at Campbell & Company and chair of Giving USA Foundation – an NRC partner. Macro-economic factors that correlate with giving, such as stock values, were strong in 2016, particularly at the end of the year. Such benefits might take a while to manifest in the charitable sector, she said.

More than one-third of organizational representatives cited the election as playing a factor in 2016 giving. In the lead-up to the election, 39 percent (24 percent with a decrease, 15 percent with an increase) of representatives cited the campaign as attributable to shifts in receipts. In November and December, 37 percent of representatives (20 percent with a decrease and 17 percent with an increase) noted election-related shifts.

Sweeney said that election-time fluctuations are common and often attributable to indecision among donors waiting until after the dust settles before making personally significant gifts. With the exception of organizations part of the “liberal resistance” such as Planned Parenthood, giving should level off among most organizations in 2017, she said.
Both Sweeney and Melissa Brown, who manages the NRC, were surprised by the consistency of results across regions, sizes, and subsectors.

Fluctuation based on organizations with increased receipts remained relatively consistent across sizes (64 percent of organizations with revenue between $500,000 and $999,999 was the high, 58 percent among organizations with revenue of $50 million or more was the low), region (65 percent among Western organizations was the high, the South, at 60 percent, was the low), and subsectors (67 percent of human services organizations was the high, the low was public society benefit at 29 percent, but the second lowest was higher education at 52 percent). Sweeney said that there is not enough information to explain public society benefit organization’s bottom-out.

Sweeney was particularly surprised by the regional similarities, as previous years have shown greater geographic differences, creating the perception that east- and west-coast organizations perform better than those in the Heartland based on the fact that wages, housing values, and overall wealth have grown faster in some parts of the country as compared to others. Sweeney found the similarities to be a positive.

Representatives from one out of six organizations (16 percent), including 144 Canadian nonprofits, reported increases to receipts of 15 percent or more. Over half (54 percent) attributed their organization’s success to fundraising efforts with specific donor types, including 37 percent of the whole focused on individual fundraising, including major gifts.

The average gift received by organizations has increased during the past decade while the number of donors has not, according to Sweeney, reflective of America’s growing income inequality. As such, successfully built major gifts programs tend to lead to overall success as they are more efficient, targeting larger gifts compared to more numerous smaller gifts. As they are often built on relationships, major gifts programs are often accompanied by greater donor loyalty than annual programs.

“What I’ve been following, and this doesn’t come through in this particular report, is that other studies have shown that a smaller percentage of Americans are giving on an annual basis,” Sweeney said. “While total giving is increasing, the total percentage of giving is decreasing, which I find as a troubling trend.”
Sweeney said that she hopes increased public confidence in charity will increase the percentage of individuals who give. She added that, while major gifts are a strong indicator of success, a diverse set of fundraising programs tends to bear out the best results.